Chart of revenue comparing sales and profits for different types of brands they have warzone vs apex
Part 1: Who is more successful?
The video game industry generates 28.5BN in revenue and $2.2BN in profit annually, and is predicted to grow 10.4% every year for the next 5 years. At the top of this industry are two companies, Electronic Arts (EA) at 15.9% market share and Activision Blizzard (ATVI) at 15.5% market share. Both companies are considered video game publishers and have a collection of developer studios working underneath them. Typically, each developer studio works independently on a title. A single brand, such as Call of Duty or Star Wars might have multiple studios working on different titles, which allows the publisher to release titles for popular brands at a much faster rate than the overall title development cycle.
Comparing the market share trend between the two companies and by looking at their revenues and profits, we can say that <A is more successful than B>.
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In general, video game purchases are split into two categories, premium titles, which can be thought of as a traditional product, and in-game purchases, which can be thought of as complimentary products. We can see that both EA and ATVI have a â€œcash cowâ€ brand, where the majority of their revenues and profits come from. For EA, this is the FIFA brand, an exclusive, licensed title, based around real world soccer players and teams. For ATVI, this is Call of Duty, an action shooter with gritty, mature themes. We can see that comparing the cash cows that <conclusive statement about the nature of each cash cow success>. <Another statement referring to sales/profits about the companiesâ€™ success overall>.
<need a chart comparing sales/profits from FIFA vs CoD>
Going into the future, the shift in the gaming industry from developer focused strategies towards player and customer focused strategies will determine who is more successful.
Part 2: Why is one more successful than the other?
To get a broad understanding of the market, first we spoke to several gamers to see how they make decisions when purchasing premium titles and in-game purchases. This allows us to see 4 general types of gaming purchases: promotion driven, publisher agnostic, developer loyalist, and brand loyalist. Based on our initial survey, we found that promotion driven consumers are less interested in playing socially or for skill and base their purchases on price as their biggest decision making criteria. They will switch between brands and publishers as soon as they find a title they think they would enjoy more. Publisher angonstic consumers are more influenced by game reviews, social media, and their peers. They tend to play a game based on current trends and are not likely to play the game long enough to consider in-game purchases. Developer loyalists have a strong preference for a particular studio. They may not purchase a title in a brand if it is not the developer they favor or if the gameplay differs too much from the title they prefer. They may continue playing an older title even if a newer one is available. If the older title they prefer is no longer an option to play, such as the multiplayer servers getting shut down, they are likely to switch brands. By taking this information and modeling these consumer segmentsâ€™ chance of switching against their purchasing amounts, we can see which type of behavior to target, namely the developer and brand loyalists.
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Further questions geared towards product and service features give us more insight into how consumers are segmented by gaming style. There are three segments we identified: single player focused gamers, social gamers, and competitive gamers.
Single player focused gamers demand high quality storytelling and high quality graphics and visual experience. They also want the game to match their level of skill, as they are likely to quit playing a game and not revisit future titles from a developer if it is too difficult or too easy. Single player focused gamers are also more likely to pay attention to review scores and social media recommendations. However, they may also not purchase the game at all if they watch other gamers on streaming services play the game. Single player focused gamers tend to purchase premium titles and are not very likely to purchase in-game unless the product or service enhances value to the gameplay or grants them access to additional gameplay content. Cosmetic items are less appealing because these gamers are less interested in sharing their gaming time with others, and feel no need to â€œdress to impress.â€ Similarly add-on services that grant any in-game bonuses or improvements to rate of progress arenâ€™t appealing to this segment because they are not competing with anyone. Also, single player gamers are less likely to pay subscription fees for a single game since they switch titles so often, but may be enticed to purchase a â€œlibraryâ€ subscription that grants them access to a collection of games, as this allows them to play more games for their money.
Social gamers are more interested in spending time with a group of friends through video gaming and tend to focus on multiplayer games. They will follow what the friend group will want to do and as such may be sensitive to barriers to entry, such as the overall cost to the group if every member needs to purchase a premium title at full price. Considering this fact, they are also swayed by quantity promotions, if there is a discount for purchasing multiple copies at the same time. As for in-game purchases, this segment is likely to purchase cosmetic items that appeal to their sense of aesthetics and any add-on services that their friends will purchase if they feel it impacts the group overall. For example, in a team competitive game, if one member purchases an add-on service, the other members in the friend group are more likely to buy if it impacts the gameplay directly, such as providing full or faster access to unlockable gameplay items. If the add-on service does not impact the gameplay, such as only increasing the rate of cosmetics earned in-game, then other members of the group are less likely to buy. Cosmetic purchases are less influenced by group purchases and more by individual preferences. Social gamers are more likely to pay subscription fees if they feel like they are getting some social value out of a particular title, such as integral mechanics to group players together. However, they may be resistant to subscription fees if they feel like the social value is something they could DIY or if itâ€™s something they think should be free, such as competitive matchmaking. In â€œfree to playâ€ offerings, social gamers also tend to feel the need to periodically â€œrewardâ€ the developers for continued support of the title by purchasing in-game content.
Competitive gamers also focus on multiplayer games and are attracted to a particular set of mechanics in a title. This segment is interested in playing for skill and competing with others. This segment is typically invested into a single game and will play that game as long as it is supported by the publisher and there is not a follow up title or equivalent competitor to replace it. Competitive gamers are more likely to pay subscription fees for a single title and make in-game purchases based on whether or not they give them any gameplay value or competitive advantage. However, competitive gamers may be less attracted to character or story, so they may not be interested in purchasing cosmetics. This segment is also more likely to switch if the title or brand of their preference undergoes too many changes, since they are invested in a particular skill set.
The survey also tells us about what customers of EA think of ATVI and vice versa. Customers of EA think favorably of ATVI in terms of the polish and quality of their games, especially their non-franchised one off titles, such as Sekiro. However, EA customers tend to not like ATVI due to a â€œsmallâ€ feel in multiplayer titles and a weak sports genre offering.
Customers of ATVI think favorably of EA in the brand power they command, specifically the Star Wars franchise and sports genre titles, both of which, EA has exclusive franchising rights. ATVI customers also appreciate the wide range of titles offered, especially through EA Play, a subscription service that allows access to a vast library of older EA titles. Where ATVI customers look at EA unfavorably is the lack of polish in their recent titles and the feeling that EA does not listen to or respect its playerbase.
<need charts and score of opinion and likelihood of purchase per feature per segment for the each publisher: premium title, subscription fees, add-on services (e.g. battlepass), cosmetics>
A brief overview of the industry was provided in the introductory paragraphs, so in this section, we will look at some trends ongoing in the industry.
Casual and mobile gaming are both on the rise. Casual gaming is by far the largest segment by game genre, at 22% market share. The next largest are action games at 13%, role playing games, and shooters at 11%. Both EA and ATVI provide titles in all four of these genres. However, the bulk of EAâ€™s revenue and profits come from the smallest segment, sports games, which comes in at 5%. Both companies have also made forays into the mobile gaming sector, with EA offering FIFA Mobile and ATVI offering Call of Duty Mobile and Candy Crush, and working to introduce more mobile games in conjunction with new, upcoming premium titles, such as Diablo Immortal with Diablo IV.
While the barrier to entry for the industry used to be very high, with a limited pool of talent, the industry is more robust these days and as such, we are seeing smaller competitors enter. EA and ATVI are considered AAA publishers, with revenues and budgets rivaling Hollywood movies. Smaller indie and AA companies are finding niches in gaming, such as a demand for retro gaming and cooperative gaming.
A theme popular for the gaming industry these days is â€œheroes.â€ The video game industry is not insulated from the appeal of the comic book hero to consumers or the successes seen in the film and television industries. Many game developers have tried to emulate the way comic books have been adapted directly to film and television without success, but more recently, especially in the nascent â€œhero shooterâ€ genre, we are seeing much interest and success. In this genre, EA offers the Apex Legends brand and ATVI offers the Overwatch brand.
A recent criticism of the video game industry is the use of â€œloot boxesâ€ as an in-game purchase mechanic. Loot boxes are random and can contain cosmetics, gameplay items, in-game currency, to name a few prizes. However, since there is an element of chance and highly desirable prizes have a low chance of dropping, the purchase of loot boxes has been compared to gambling. In some instances, such as with FIFA, children playing the game may end up charging loot box purchases to their parentsâ€™ credit card, racking up hundreds of dollars of expenses in an attempt to unlock rare prizes. This presents a challenge for publishers, as it is a popular monetization mechanic but offers little in the way of protection for those with gambling addictions or for children who may not know better.
Part of the reason there is a lower cost to entry to the industry is the ever lowering price of technology. Network and server speeds are faster and cheaper and continue to get faster and cheaper as time goes on. Newer technologies can be focused more on the social elements of gaming, such as building brand awareness through social media integration in games or in improving the matchmaking and ranking capabilities for competitive multiplayer games.
Mobile gaming is on the rise simply because mobile devices are becoming more and more powerful. A flagship phone is able to perform on par with a gaming console from 2 generations back. Wireless network speeds are also fast enough to allow gamers to play multiplayer games without interruption or game breaking latency issues. Paired with the fact that the populace of many developing nations may not have the disposable income to purchase a gaming console or PC but generally have access to a smartphone, mobile gaming is a big growth market, not just for casual games, but for many other more computational and graphically intense games.
Development in game engines is also changing. Traditionally, a developer would create or customize a purchased engine that would run the gameâ€™s graphics and physics. This led to long development cycles to create unique game experiences per premium title. Additional content could be generated using that engine, but typically, this content would not be sold at the premium price and would be lesser in terms of hours of entertainment. If a premium title offered 40 hours of gameplay at $60, the additional content would typically only add 5-10 more hours and be priced around $20. A newer model of engine development has become popular in the AAA publisher realm, where an engine is developed internally and then reused for many different titles. For publisher Ubisoft, the Assassinâ€™s Creed and Tom Clancy brands have been running on the AnvilNext2.0 engine created in 2014. ATVI has a similar model with variants of the IW engine being used for each successive release of titles in the Call of Duty brand. EA is a bit more pervasive with the use of their Frostbite engine, with it spanning across most of their premium brands, including Battlefield, Star Wars, FIFA, Madden, and Need for Speed. This engine reuse cuts down on R&D, requiring only minor tweaks between titles, allowing for the development teams to focus on content, art assets, and gameplay mechanics.
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